3) General Illustration
Marx then details the background to the economic crisis caused by the cotton famine of 1861-65, that resulted from the US Civil War. He starts with the developments from 1845. In that year, the price of cotton was very low. It prompted a burst of activity. Marx quotes Leonard Horner, who details the number of new textile factories being built, enlargement of existing factories, and empty factories being tenanted. In addition, more machinery was being introduced.
By the following year already, a reaction had set in. The large increase in capacity and introduction of more and newer machines had both increased output and at the same time, sharply raised demand for material. Selling prices fell as supply increased even beyond demand, whilst cost prices rose due to increased demand for material pushing up material prices. Profits were thereby squeezed.
“There has been a great advance in the price of the raw material... there has been not only no advance in the manufactured articles, but ... prices are lower than they were before the rise in cotton began. From the great increase in the number of cotton mills within the last four years, there must have been, on the one hand, a greatly increased demand for the raw material, and, on the other, a greatly increased supply in the market of the manufactured articles; causes that must concurrently have operated against profits, supposing the supply of the raw material and the consumption of the manufactured article to have remained unaltered; but, of course, in the greater ratio by the late short supply of cotton, and the falling off in the demand for the manufactured articles in several markets, both home and foreign. (Reports of Insp. of Fact., Oct. 1846, p. 10.)” (p 124)
Marx comments,
“The rising demand for raw materials naturally went hand in hand with a market flooded with manufactures. By the way, the expansion of industry at that time and the subsequent stagnation were not confined to the cotton districts. The carded wool district of Bradford had only 318 factories in 1836 and 490 in 1846. These figures do not by any means express the actual growth of production, since the existing factories were also considerably enlarged. This was particularly true of the flax spinning-mills.
"All have contributed more or less, during the last ten years, to the overstocking of the market, to which a great part of the present stagnation of trade must be attributed... The depression... naturally results from such rapid increase of mills and machinery." (Reports of Insp. of Fact., Oct. 1846, p. 30.)” (p 124.5)
In other words, this was clearly not a crisis caused by under-consumption. On the contrary, it arises at a time of relative affluence and high demand. It is not a lack of consumption that causes there to be a “market flooded with manufactures”, but “the expansion of industry”, an expansion that itself was encouraged by the buoyant demand, and high rates of profit, available as a result. So, nor was this a crisis caused by any long-term tendency for the rate of profit to fall.
It was rather a crisis of the sort that Marx describes in Volume II, whereby commodity-capital is overproduced. It cannot be sold, and so the circuit of capital breaks down, as the commodity-capital is not converted into money-capital, so productive-capital is not reproduced.
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